Brazil propels LatAm’s oil market, while Mexico and Colombia face uncertainties. Fitch Ratings’ recent report reveals contrasting fortunes in Latin America’s oil sector.
The report suggests that Brazilian companies are expected to expand, realizing synergies and achieving economies of scale.
In contrast, Colombian energy and oil firms are anticipated to face rising costs due to diminishing reserves.
Petrobras’ recent divestments have created opportunities for new low-cost producers like Petro Rio S.A. to monetize reserves through secondary and tertiary recoveries.
However, Fitch warned of depleting reserves in Colombia and Mexico due to bans on unconventional production and poor infrastructure.
Brazil’s reserves, estimated to last 11.5 years, are expected to increase with promising developments in the equatorial margin formation, partially offsetting declines elsewhere.
Fitch also warned that progressive governments’ energy and environmental policies would affect region-wide capital allocation and production costs.
Credit ratings of most Latin American national oil companies are significantly linked to their governments’ ratings.
PEMEX’s ratings, for instance, are four notches below Mexico’s due to its weak independent credit profile and slow government action to strengthen its capital structure.
Conversely, YPF’s ratings are a notch above Argentina’s, as Fitch believes a sovereign default is likely in the coming years despite the positive prospects associated with the Vaca Muerta field.
Balanz Capital’s report highlights the resilience of the U.S. economy and OPEC’s firm stance on limited oil supply as supportive of barrel prices.
However, it notes economic weaknesses in China and Europe, which weighed on copper prices and cautioned against activity-linked commodities like oil until mid-2024.
Balanz still considers gold a good hedge against negative scenarios.